Broadly speaking, the making of loans or advances constitutes an investment of capital and any loss. arising on such transactions is inadmissible as a deduction. The only exceptions are where:
(See Reid's Brewery Co Ltd v Male [1891] 3TC279; English Crown
Spelter Co Ltd v Baker [1908] 5TC327; CIR v Hagart &
Burn-Murdoch [1928] 14TC433; WA & F Rutherford v CIR [1938]
23TC8; Bury & Walkers v Phillips [1951] 32TC198.)
As evidence of the admissibility of a deduction under this
head claimed by a trader a custom obtaining among persons in that
particular type of trade to make similar advances on loan is a
factor to be taken into account, although the absence of such a
custom does not in itself necessarily preclude the allowance of a
loss.
An operation which, although not in the form of an advance on
loan, is in essence clearly of that character should in this
connection be treated as such for tax purposes. Such a transaction
may occur for example where payment is made in advance, in
exceptional circumstances outside the ordinary course of business,
against future deliveries of goods (Charles Marsden & Sons Ltd
v CIR [1919], 12TC217 - for a fuller description of the
circumstances of this case see
BIM37760 and
BIM37790). Similarly, the purchase of
goods from a subsidiary or associated company at an excessive price
may in essence be an advance (see CIR v Huntley & Palmers Ltd
[1928] 12TC1209).
As regards bridging loans made by solicitors see
BIM65820.
